The draft legislation dealing with the new regime for capital allowances on cars has now been released for consultation. The consultation document is extensive, running to 80 pages, and deals with the history of the proposals, stretching back as far as 2004. The final proposals are set out in detail, together with the draft legislation for comment.
The new rules will commence in April 2009 (on 1 April for companies and 6 April for income tax businesses) and will provide the following :
- Cars with emissions of no more than 160 g/km will be added to the main plant and machinery pool, and allowances therefore given as a 20 per cent writing down allowance, irrespective of the cost of the car.
- Cars with emissions of more than this amount will be added to the special rate pool, thus attracting a writing down allowance of 10 per cent per annum.
- Leased cars will be subject to an “add back” on leasing payments only when the emissions exceed 160 g/km. The add back will be a flat 15 per cent of the lease payments. There will be no lease restriction for cars with emissions of no more than 160g/km. The new rules will apply to leases entered into on or after the commencement date, so that existing leases are unaffected.
- The new rates of capital allowances will apply to cars purchased on or after the relevant commencement date, so existing cars will remain within the old regime. However, existing cars which are still owned at the end of the chargeable period ending five years after the commencement of the new rules will be transferred into the new regime at that point.
There are some interesting areas of detail in the consultation, which have not been apparent in the previous press notices. These include :
- The different rules which have previously applied to “qualifying hire cars” (see Section 82 CAA 2001) such as taxis will be abolished so that all cars are subject to the same rules. The old rules allowed “expensive” cars used as taxis or for hire to the disabled to qualify for writing down allowances in the main pool irrespective of cost – in other words no first year allowance (or annual investment allowance) would be available, but these cars are not subject to the £12,000 rule.
- At present by virtue of Section 81 CAA 2001, motorcycles are treated as cars for capital allowance purposes. It is intended to remove motorcycles from the definition of cars in 2009, and to allow them to qualify as plant and machinery proper. This would mean that Annual Investment Allowance would be available on them.
- Cars which do not have an official emissions figure (other than cars registered before 1 March 2001) would be allocated to the special rate pool and attract allowances at 10 per cent per annum. Cars registered before that date would be allocated to the main pool, attracting 20 per cent allowances.
